International Steel v Dynatec Madagasgar: Legitimacy of Emergency Arbitration Acknowledged by Canadian Court of First Instance

International Steel v Dynatec Madagasgar: Legitimacy of Emergency Arbitration Acknowledged by Canadian Court of First Instance

Benjamin is currently completing joint Bachelor of Laws and Bachelor of Civil Law degrees at McGill University. He is an editor for the McGill Journal of Dispute Resolution, as well as a researcher for the MShares Shareholder Activism project. Previous experience includes work in bankruptcy and financial services. He also holds an Honours Bachelor of Social Sciences degree from the University of Ottawa. 

International Steel v Dynatec Madagasgar: Legitimacy of Emergency Arbitration Acknowledged by Canadian Court of First Instance

As part of the ongoing international debate surrounding awards and orders coming out of emergency arbitration proceedings, the Superior Court of Ontario’s recent ruling in International Steel v Dynatec Madagasgar adds a new chapter to the story. [1] This article summarizes the new practice, reasons for its development, and its current challenges. It then discusses Justice Newbould’s recent decision and its implications going forward.

The need for emergency arbitration

Interim remedies such as interlocutory injunctions have long been available during litigation as a means of preserving assets or maintaining the status quo of the parties’ relationship. [2] As a temporary measure, they are useful in situations threatening immediate and irreparable harm to a right.

In arbitration proceedings, however, such remedies have historically been absent. This was problematic when parties included clauses that required all contractual disputes be settled in arbitration. Issues could sometimes be so immediately detrimental to a party that they necessitated an interim remedy before an arbitral tribunal could be formed. While arbitration rules have included specific clauses allowing parties to seek interim relief before state courts prior to the constitution of the arbitral tribunal, [3] there was not, until recently, a process within the institution itself that could provide anything similar.  Going to court was disappointing for parties who specifically sought the increased efficiency and anonymity of arbitration proceedings to resolve disputes. There has also been no guarantee that courts would even view themselves as having the power to grant interim remedies to parties already engaged in arbitration proceedings, causing further relational uncertainty. [4] 

Thus, in an effort to keep meeting their clients’ needs and ensure the process’ legitimacy, most international arbitration institutions’ rules now incorporate provisions allowing for emergency proceedings that can grant some type of interim relief before a full tribunal is formed. Rules are similar across regimes: arbitrators are appointed within days, broad discretion is granted as to the type of hearing required, orders and awards lapse if there are not further hearings scheduled, and a strict time limit to issue decisions is imposed. [5]

The enforceability of these emergency decisions, however, is unclear. While international conventions provide the foundation for a widespread recognition and enforcement of arbitration awards, [6] it is not a given that orders or awards delivered in the context of emergency proceedings can be neatly subsumed under that category. In particular, it is unlikely that emergency orders would fall under the purview of conventions for the purposes of local enforcement. [7] This is problematic because, while a small number of arbitral institutions such as  the International Chamber of Commerce (‘ICC’) provide that decisions of emergency tribunals will definitively take the form of an order, [8] other widely used rules such as those of the LCIA, [9] SIAC, [10] HKIAC, [11] and ICDR [12] all provide that these can take the form of either an order or an award. Furthermore, even decisions framed as awards do not enjoy a significantly greater expectation of enforcement because they are plagued by the argument that they lack sufficient ‘finality’ or ‘determinativeness’ [13] to be considered awards for purposes of recognition under the 1958 New York Convention. [14]

Court rulings have been split on the matter, leaving the legitimacy of emergency arbitration in limbo. In 2013, a Swiss judge decided against recognizing an interim award because the arbitrator demonstrated no intent to settle the dispute in a definitive manner; rather, his decision was understood as merely pertaining to “provisional measures”, and was thus unenforceable. [15] In 2011, a California district court refused to hear an application to set a decision of an emergency arbitrator aside on the basis that it was not an award, [16] inferring that it would not be enforceable under international convention and federal legislation. [17] Inversely, in separate rulings, two other district courts recently considered emergency awards to be sufficiently ‘final’ in the sense that they were issued on the basis of being outcomes related to matters specifically debated in their respective hearings. [18] 

Split decisions across jurisdictions highlight the fact that there is still an ongoing debate in the courts over how to understand decisions coming out of these proceedings. In the absence of a more authoritative appellate-level decision, each new ruling merits some attention.

A Canadian Voice

To that end, the 2016 International Steel v Dynatec Madagasgar decision is important because it marks the first time a Canadian court has waded into the debate – albeit indirectly. 

The plaintiff, International Steel, had been contracted to manage an acid plant for the defendants. Following an inability to agree on an extension of their services, the defendants initiated a transition processes to retake management responsibilities. Per contractual requirements, the plaintiffs attempted to send the dispute to arbitration. Given its time sensitive nature, emergency proceedings were pushed. The plaintiffs hoped to stop the transition while contract duration was settled after a normal arbitral tribunal was formed. The defendants dragged their feet, however, forcing the plaintiffs to apply directly to court for an injunction protecting their contractual rights. [19]

Newbould J of the Superior Court of Ontario sided with the plaintiffs and issued an interim protective restraining order stopping the defendants from continuing with the transition. In doing so, he singled the defendants out for failing to submit their dispute to emergency arbitration. The issue of interim relief “should have been dealt with before an arbitrator under the ICC emergency arbitration rules as requested by ISSI… Dynatec’s refusal to take any steps to respond to ISIS’s [sic] notices and requests is a factor that I take into account in considering the equities involved in the granting of an injunction”. [20]

This judgement is obviously no guarantee that an emergency award would have been enforced. [21] Unlike cases out of the United States and Switzerland, it did not engage in a discussion about the merits of these remedies as they related to international conventions and local arbitration legislation. There was no analysis of whether sufficient finality or determinativeness of an interim award would have existed.  Nevertheless, it can be aptly characterized as a preliminary endorsement of the merits of the process, in-line with the court’s traditional desire to make contractual agreements enforceable. For proponents of these emergency measures and their benefits to the legitimacy of arbitration as an effective method dispute resolution in international commerce, this is an encouraging step forward.

Benjamin Jarvis
Editor – McGill Journal of Dispute Resolution
B.C.L/LL.B Candidate ’18, McGill University – Faculty of Law

[1] International Steel Services Inc. v Dynatec Madagasgar S.A., 2016 ONSC 2810 [International Steel]
[2] Halsbury’s Laws of Canada (online), Equitable Remedies, “Injunctions” at HER-39 “Types of Injunctions”; Erin Collins, “Pre-Trial Emergency Relief in International Commercial Arbitration” (2012) 10:1 Loyola UC Int’l Law Rev 105 at 105.
[3] See e.g. International Chamber of Commerce Arbitration Rules 2012 at art 28 [ICC Rules].
[4] Collins, supra note 2 at 121.
[5] Charlie Caher & John McMillan, “Emergency Arbitration: The Default Option for Pre-Arbitral Relief?” in Steven Finizio & Charlie Caher, eds, International Comparative Legal Guide to: International Arbitration 2015, 2nd ed (London, UK: Global Legal Group, 2015) at 1.
[6] See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 330 UNTS 4739 (entered into force on 7 June 1959) at 2-3 [New York Convention].
[7] Caher & McMillan, supra note 5 at 2.
[8] ICC Rules, supra note 3 at art 29(2).
[9] London Court of International Arbitration, LCIA Rules, London: 2014, art 9(8).
[10] Singapore International Arbitration Center, SIAC Rules, Singapore: 2013, schedule 1(6).
[11] Hong Kong International Arbitration Center, HKIAC Administered Arbitration Rules, Hong Kong: 2013, schedule 4(12).
[12] American Arbitration Association, International Dispute Resolution Procedures, 2014 at art 6(4).
[13] Caher & McMillan, supra note 5 at 2.
[14] New York Convention, supra note 7 at art V(1)(e).
[15] Caher & McMillan, supra note 5 at 2.
[16] Ibid.
[17] Ibid at n 26.
[18] See discussion of Yahoo! v. Microsoft & Blue Cross Blue Shield of Michigan v. Medimpact Healthcare Systems in Caher & McMillan, supra note 5 at 2.
[19] Since the arbitration clause concluded by the parties referred to the 1998 version of the Rules, the opposing party’s consent was need to initiate emergency proceedings (cf. Art. 6(1) 2012 ICC Rules).
[20] International Steel, supra note 1 at para 31.
[21] Yet it should be noted that under sec 2(1)(a) of BC’s International Arbitration Act, interim measures can, for enforcement purposes, take the form of awards. This suggests, in turn, that if emergency arbitration’s goal is that of granting interim measures, then emergency decisions should be enforceable as any other type of interim measure.

MJDR
info@mjdr.ca